Liabilities, actual and contingent;

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96 HASKINS & SELLS July
Liabilities, Actual and Contingent
ALIABILITY may be defined as an
obligation which is enforceable at law.
Most liabilities are voluntary. They rep­resent
obligations which arise as the result
of a contract entered into by two or more
parties. Some liabilities are involuntary.
They result from judicial mandates of
courts empowered to determine the rights
and obligations of parties in litigation over
financial differences.
Liabilities, whether voluntary or invol­untary,
impose upon the obligor a duty to
satisfy certain claims against him. In a
corporation, the assets which may be ap­propriated
by the obligor, or seized by the
obligee, for the purpose of satisfaction, are
assets to which the corporation has title.
A corporation which refuses to meet an
obligation voluntarily, may have certain of
its property seized at the behest of an
obligee who has armed himself with a
judgment of the court directing a sheriff
to levy execution. An individual who fails
to recognize his obligations and liquidate
them voluntarily, may suffer the loss by
due process of law of any assets belonging
to him whether they are of a business or of
a personal nature.
In order to avoid the necessity of pos­sible
litigation in establishing proof of
claim and the right of seizure in the event
of non-payment, certain creditors demand,
and are accorded by the obligor, an ac­knowledgment
of the amount of their
claims and the right of seizure. These
acknowledgments are, in effect, contracts,
although commonly known as mortgages.
Thus, a borrower may contract to pay a
certain sum, at a certain date, and as se­curity
for the undertaking grant a right of
foreclosure against and seizure of certain
real property, in the event of failure to pay
interest and principal. This is the ordinary
bond and mortgage undertaking, in which
the bond is the promise to pay; the mort­gage
is the security for the payment.
A chattel mortgage is a lien on personal,
rather than real, property. If properly
drawn, it is none the less binding. The
obligation may be represented by a note
or by an open account. The representa­tion
through which the indebtedness is
recognized, whether note or open account,
is immaterial so long as the amount of the
liability is expressed in the document of
lien. The essential elements in the declara­tion
are: that John Doe is justly indebted
to Richard Roe in the sum of so many
dollars; and that for the purpose of secur­ing
the payment of the sum stated, the
grantor mortgages, and creates a mortgage
lien upon, the property which is subse­quently
described.
Borrowings secured by stocks, bonds, or
other evidences of indebtedness ordinarily
are referred to as collateral loans. Strictly